Unassociated Document
United States
Securities and Exchange Commission
Washington, D.C. 20549

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 25, 2011

or

¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to

Commission file number 0-31983
 

GARMIN LTD.
(Exact name of Company as specified in its charter)

Switzerland
(State or other jurisdiction
of incorporation or organization)
98-0229227
(I.R.S. Employer identification no.)
Mühlentalstrasse 2
8200 Schaffhausen
Switzerland
(Address of principal executive offices)
N/A
(Zip Code)

Company's telephone number, including area code:  +41 52 630 1600

Vorstadt 40/42, 8200 Schaffhausen, Switzerland
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES þ      NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer  þ    Accelerated Filer ¨     Non-accelerated Filer ¨ (Do not check if a smaller reporting company)  Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨   NO þ

Number of shares issued and registered of the registrant’s common shares as of August 1, 2011
CHF 10.00 par value:  208,077,418 (including treasury shares)

 
1

 

Garmin Ltd.
Form 10-Q
Quarter Ended June 25, 2011

Table of Contents

     
Page
Part I - Financial Information
 
       
 
Item 1.
Condensed Consolidated Financial Statements
3
       
   
Introductory Comments
3
       
   
Condensed Consolidated Balance Sheets at June 25, 2011 (Unaudited) and December 25, 2010
4
       
   
Condensed Consolidated Statements of Income for the 13-weeks and 26-weeks ended June 25, 2011 and June 26, 2010 (Unaudited)
5
       
   
Condensed Consolidated Statements of Cash Flows for the 26-weeks ended June 25, 2011 and June 26, 2010 (Unaudited)
6
       
   
Notes to Condensed Consolidated Financial Statements (Unaudited)
7
       
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
14
       
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
26
       
 
Item 4.
Controls and Procedures
27
       
Part II - Other Information
 
       
 
Item 1.
Legal Proceedings
28
       
 
Item 1A.
Risk Factors
31
       
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
31
       
 
Item 3.
Defaults Upon Senior Securities
31
       
 
Item 4.
(Removed and Reserved)
 
       
 
Item 5.
Other Information
31
       
 
Item 6.
Exhibits
32
       
Signature Page
33
   
Index to Exhibits
34

 
2

 

Garmin Ltd.
Form 10-Q
Quarter Ended June 25, 2011

Part I – Financial Information

Item 1.  Condensed Consolidated Financial Statements

Introductory Comments

The Condensed Consolidated Financial Statements of Garmin Ltd. ("Garmin" or the "Company") included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission.  Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to enable a reasonable understanding of the information presented.  These Condensed Consolidated Financial Statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 25, 2010.  Additionally, the Condensed Consolidated Financial Statements should be read in conjunction with Item 2 of Management's Discussion and Analysis of Financial Condition and Results of Operations, included in this Form 10-Q.

The results of operations for the 13-week and 26-week periods ended June 25, 2011 are not necessarily indicative of the results to be expected for the full year 2011.

 
3

 

Garmin Ltd. And Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share information)

   
(Unaudited)
       
   
June 25,
   
December 25,
 
   
2011
   
2010
 
Assets
           
Current assets:
           
Cash and cash equivalents
  $ 1,418,871     $ 1,260,936  
Marketable securities
    62,626       24,418  
Accounts receivable, net
    493,057       747,249  
Inventories, net
    385,678       387,577  
Deferred income taxes
    27,691       33,628  
Deferred costs
    28,343       20,053  
Prepaid expenses and other current assets
    46,261       24,894  
Total current assets
    2,462,527       2,498,755  
                 
Property and equipment, net
    423,697       427,805  
                 
Marketable securities
    1,016,869       777,401  
Restricted cash
    1,393       1,277  
Licensing agreements, net
    8,305       1,800  
Noncurrent deferred income tax
    73,613       73,613  
Noncurrent deferred costs
    31,047       24,685  
Other intangible assets, net
    181,004       183,352  
Total assets
  $ 4,198,455     $ 3,988,688  
                 
Liabilities and Stockholders' Equity
               
Current liabilities:
               
Accounts payable
  $ 125,680     $ 132,348  
Salaries and benefits payable
    37,393       49,288  
Accrued warranty costs
    41,691       49,885  
Accrued sales program costs
    48,929       107,261  
Deferred revenue
    134,341       89,711  
Accrued royalty costs
    27,509       95,086  
Accrued advertising expense
    23,544       21,587  
Other accrued expenses
    70,622       63,043  
Deferred income taxes
    4,435       4,800  
Income taxes payable
    13,795       56,028  
Dividend payable
    388,148       0  
Total current liabilities
    916,087       669,037  
                 
Deferred income taxes
    13,180       6,986  
Non-current income taxes
    157,979       153,621  
Non-current deferred revenue
    146,973       108,076  
Other liabilities
    1,542       1,406  
                 
Stockholders' equity:
               
Shares, CHF 10 par value, 208,077,418 shares authorized and issued;
194,087,445 shares outstanding at June 25, 2011;
and 194,358,038 shares outstanding at December 25, 2010;
      1,797,435         1,797,435  
Additional paid-in capital
    53,707       38,268  
Treasury stock
    (116,099 )     (106,758 )
Retained earnings
    1,097,970       1,264,613  
Accumulated other comprehensive income
    129,681       56,004  
Total stockholders' equity
    2,962,694       3,049,562  
Total liabilities and stockholders' equity
  $ 4,198,455     $ 3,988,688  

See accompanying notes.

 
4

 

Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except per share information)

   
13-Weeks Ended
   
26-Weeks Ended
 
   
June 25,
   
June 26,
   
June 25,
   
June 26,
 
   
2011
   
2010
   
2011
   
2010
 
Net sales
  $ 674,099     $ 728,765     $ 1,181,933     $ 1,159,833  
                                 
Cost  of goods sold
    351,999       337,113       621,459       537,272  
                                 
Gross profit
    322,100       391,652       560,474       622,561  
                                 
Advertising expense
    34,098       42,440       54,054       59,841  
Selling, general and administrative expense
    85,896       73,832       159,082       141,509  
Research and development expense
    70,515       73,337       140,994       135,820  
Total operating expense
    190,509       189,609       354,130       337,170  
                                 
Operating income
    131,591       202,043       206,344       285,391  
                                 
Other income (expense):
                               
Interest income
    7,639       5,791       14,854       12,669  
Foreign currency gains (losses)
    (14,611 )     (43,605 )     (2,471 )     (90,141 )
Other
    2,453       180       5,271       2,013  
Total other income (expense)
    (4,519 )     (37,634 )     17,654       (75,459 )
                                 
Income before income taxes
    127,072       164,409       223,998       209,932  
                                 
Income tax provision
    17,595       29,593       19,039       37,788  
                                 
Net income
  $ 109,477     $ 134,816     $ 204,959     $ 172,144  
                                 
Net income per share:
                               
Basic
  $ 0.56     $ 0.68     $ 1.06     $ 0.86  
Diluted
  $ 0.56     $ 0.67     $ 1.05     $ 0.86  
                                 
Weighted average common shares outstanding:
                               
Basic
    194,051       198,948       193,986       199,437  
Diluted
    194,875       200,102       194,801       200,626  
                                 
Dividends declared per share
  $ 2.00     $ 1.50     $ 2.00     $ 1.50  

See accompanying notes.

 
5

 
 
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)

   
26-Weeks Ended
 
   
June 25,
   
June 26,
 
   
2011
   
2010
 
Operating Activities:
           
Net income
  $ 204,959     $ 172,144  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation
    27,393       26,746  
Amortization
    10,861       24,809  
Loss (gain) on sale of property and equipment
    308       (6 )
Provision for doubtful accounts
    3,563       (552 )
Deferred income taxes
    7,149       (30 )
Unrealized foreign currency losses/(gains)
    16,363       47,880  
Provision for obsolete and slow moving inventories
    (6,998 )     10,309  
Stock compensation expense
    17,315       19,099  
Realized losses/(gains) on marketable securities
    (4,176 )     (470 )
Changes in operating assets and liabilities, net of acquisitions:
               
Accounts receivable
    265,448       364,401  
Inventories
    20,659       (64,272 )
Other current assets
    (31,490 )     5,142  
Accounts payable
    (13,082 )     (52,248 )
Other current and non-current liabilities
    (142,918 )     (193,657 )
Deferred revenue
    83,628       37,425  
Deferred cost
    (14,652 )     (6,610 )
Income taxes payable
    (30,033 )     (7,771 )
License fees
    (3,344 )     (472 )
Net cash provided by operating activities
    410,953       381,867  
                 
Investing activities:
               
Purchases of property and equipment
    (14,315 )     (13,220 )
Purchase of intangible assets
    (2,587 )     (8,229 )
Purchase of marketable securities
    (520,759 )     (169,062 )
Redemption of marketable securities
    263,428       294,350  
Change in restricted cash
    (116 )     1,111  
Net cash (used in)/provided by investing activities
    (274,349 )     104,950  
                 
Financing activities:
               
Proceeds from issuance of common stock through
               
stock purchase and stock option plans
    4,337       5,452  
Taxes paid related to net share settlement of equity awards
    (336 )     -  
Stock repurchase
    -       (84,328 )
Dividends
    -       (299,103 )
Tax benefit related to stock option exercise
    1,197       1,898  
Net cash provided by/(used in) financing activities
    5,198       (376,081 )
                 
Effect of exchange rate changes on cash and cash equivalents
    16,133       (29,148 )
                 
Net increase in cash and cash equivalents
    157,935       81,588  
Cash and cash equivalents at beginning of period
    1,260,936       1,091,581  
Cash and cash equivalents at end of period
  $ 1,418,871     $ 1,173,169  

See accompanying notes.
 
 
6

 
 
Garmin Ltd. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 25, 2011
(In thousands, except share and per share information)

1.
Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the 13-week and 26-week periods ended June 25, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

The condensed consolidated balance sheet at December 25, 2010 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 25, 2010.

The Company’s fiscal year is based on a 52-53 week period ending on the last Saturday of the calendar year.  Therefore the financial results of certain fiscal years, and the associated 14-week quarters, will not be exactly comparable to the prior and subsequent 52-week fiscal years and the associated quarters having only 13-weeks.  The quarters and year-to-date periods ended June 25, 2011 and June 26, 2010 both contain operating results for 13-weeks and 26-weeks, respectively.

2.
Inventories

The components of inventories consist of the following:

   
June 25, 2011
   
December 25, 2010
 
             
Raw materials
  $ 152,480     $ 103,277  
Work-in-process
    43,259       43,507  
Finished goods
    219,270       278,513  
Inventory reserves
    (29,331 )     (37,720 )
Inventory, net of reserves
  $ 385,678     $ 387,577  

3.
Share Repurchase Plan

The Board of Directors approved a share repurchase program on February 12, 2010, authorizing the Company to purchase up to $300,000 of its common shares as market and business conditions warrant on the open market or in negotiated transactions in compliance with the SEC’s Rule 10b-18.   The share repurchase authorization expires on December 31, 2011.   As of June 25, 2011, the Company had repurchased 7,366,646 shares using cash of $223,149 with all purchases made prior to fiscal 2011.  There remains approximately $76,851 available for repurchase under this authorization.
 
 
7

 
 
In addition, 522,856 shares repurchased for $16,723 prior to the Company’s redomestication to Switzerland on June 27, 2010, but for which transactions settled after that date, were treated as retired when such shares were still in treasury.  These shares were reflected as additional treasury shares during the 13-weeks ended March 26, 2011 with a corresponding increase to retained earnings.
 
4.
Earnings Per Share

The following table sets forth the computation of basic and diluted net income per share:
 
   
13-Weeks Ended
 
   
June 25,
   
June 26,
 
   
2011
   
2010
 
Numerator:
           
Numerator for basic and diluted net income
per share - net income
  $ 109,477     $ 134,816  
                 
Denominator:
               
Denominator for basic net income per share –
               
weighted-average common shares
    194,051       198,948  
                 
Effect of dilutive securities –
               
employee stock options and
               
stock appreciation rights
    824       1,154  
                 
Denominator for diluted net income per share –
               
adjusted weighted-average common shares
    194,875       200,102  
                 
Basic net income per share
  $ 0.56     $ 0.68  
                 
Diluted net income per share
  $ 0.56     $ 0.67  
                 
   
26-Weeks Ended
 
   
June 25,
   
June 26,
 
    2011     2010  
Numerator:
               
Numerator for basic and diluted net income
               
per share - net income
  $ 204,959     $ 172,144  
                 
Denominator:
               
Denominator for basic net income per share –
               
weighted-average common shares
    193,986       199,437  
                 
Effect of dilutive securities –
               
employee stock options and
               
stock appreciation rights
    815       1,189  
                 
Denominator for diluted net income per share –
               
adjusted weighted-average common shares
    194,801       200,626  
                 
Basic net income per share
  $ 1.06     $ 0.86  
                 
Diluted net income per share
  $ 1.05     $ 0.86  

 
8

 

There were 5,959,686 anti-dilutive options for the 13-week period ended on June 25, 2011.  There were 6,186,519 anti-dilutive options for the 13-week period ended June 26, 2010.

There were 6,001,583 anti-dilutive options for the 26-week period ended on June 25, 2011.  There were 6,198,202 anti-dilutive options for the 26-week period ended June 26, 2010.

There were 72,545 shares issued as a result of exercises of stock appreciation rights and stock options for the 13-week period ended June 25, 2011.  There were 73,574 shares issued as a result of exercises of stock appreciation rights and stock options for the 13-week period ended June 26, 2010.

There were 251,916 shares issued as a result of exercises of stock appreciation rights and stock options for the 26-week period ended June 25, 2011.  There were 365,288 shares issued as a result of exercises of stock appreciation rights and stock options for the 26 week period ended June 26, 2010.

5.
Comprehensive Income

Comprehensive income is comprised of the following:

   
13-Weeks Ended
 
   
June 25,
   
June 26,
 
   
2011
   
2010
 
Net income
  $ 109,477     $ 134,816  
Translation adjustment
    21,392       (7,821 )
Change in fair value of available-for-sale marketable securities, net of deferred taxes
    16,911       8,838  
Comprehensive income
  $ 147,780     $ 135,833  
                 
   
26-Weeks Ended
 
   
June 25,
   
June 26,
 
    2011     2010  
Net income
  $ 204,959     $ 172,144  
Translation adjustment
    54,145       218  
Change in fair value of available-for-sale marketable securities, net of deferred taxes
    19,525       15,201  
Comprehensive income
  $ 278,629     $ 187,563  

6.
Segment Information

Beginning in 2011, for external reporting purposes, the Company has identified five operating segments – Auto/Mobile, Aviation, Marine, Outdoor and Fitness.  Each operating segment is individually reviewed and evaluated by our Chief Operating Decision Maker, who allocates resources and assesses performance of each segment individually.  Prior to 2011, the Outdoor and Fitness operating segments were combined into a single reportable segment due to the similar nature of those products, their production processes, the types of customers served, their distribution processes, and similar economic conditions.  Management re-evaluated the combination of these operating segments and determined that based on the growth of these segments they should now be reported as two distinct reportable segments.

Net sales, operating income, and income before taxes for each of the Company’s reportable segments are presented below:

 
9

 
 
   
Reportable Segments
 
                     
Auto/
             
   
Outdoor
   
Fitness
   
Marine
   
Mobile
   
Aviation
   
Total
 
13-Weeks Ended June 25, 2011
                                   
                                     
Net sales
  $ 81,007     $ 78,014     $ 79,117     $ 362,706     $ 73,255     $ 674,099  
Operating income
  $ 35,667     $ 25,384     $ 23,357     $ 25,277     $ 21,906     $ 131,591  
Income before taxes
  $ 34,921     $ 24,568     $ 22,094     $ 23,228     $ 22,261     $ 127,072  
                                                 
13-Weeks Ended June 26, 2010
                                               
                                                 
Net sales
  $ 79,847     $ 62,469     $ 74,310     $ 447,225     $ 64,914     $ 728,765  
Operating income
  $ 38,035     $ 24,724     $ 32,146     $ 88,548     $ 18,590     $ 202,043  
Income before taxes
  $ 34,138     $ 21,512     $ 28,616     $ 62,419     $ 17,724     $ 164,409  
                                                 
26-Weeks Ended June 25, 2011
                                               
                                                 
Net sales
  $ 147,458     $ 134,382     $ 130,425     $ 627,255     $ 142,413     $ 1,181,933  
Operating income
  $ 60,474     $ 40,841     $ 38,490     $ 26,872     $ 39,667     $ 206,344  
Income before taxes
  $ 63,109     $ 43,066     $ 40,523     $ 34,884     $ 42,416     $ 223,998  
                                                 
26-Weeks Ended June 26, 2010
                                               
                                                 
Net sales
  $ 139,233     $ 105,819     $ 115,625     $ 668,149     $ 131,007     $ 1,159,833  
Operating income
  $ 62,404     $ 38,923     $ 41,075     $ 105,530     $ 37,459     $ 285,391  
Income before taxes
  $ 54,244     $ 32,571     $ 35,244     $ 52,163     $ 35,710     $ 209,932  

Allocation of certain research and development expenses, and selling, general, and administrative expenses are made to each segment on a percent of revenue basis.

Net sales and property and equipment, net by geographic area are as follows as of and 26-week periods ended June 25, 2011 and June 26, 2010:

   
North
                   
   
America
   
Asia
   
Europe
   
Total
 
June 25, 2011
                       
Net sales to external customers
  $ 638,420     $ 119,606     $ 423,907     $ 1,181,933  
Long lived assets
  $ 229,779     $ 145,085     $ 48,833     $ 423,697  
                                 
June 26, 2010
                               
Net sales to external customers
  $ 696,120     $ 91,681     $ 372,032     $ 1,159,833  
Long lived assets
  $ 231,064     $ 146,087     $ 49,654     $ 426,805  

7.
Warranty Reserves
 
The Company’s products sold are generally covered by a warranty for periods ranging from one to three years.   The Company’s estimate of costs to service its warranty obligations are based on historical experience and expectation of future conditions and are recorded as a liability on the balance sheet.   The following reconciliation provides an illustration of changes in the aggregate warranty reserve.

 
10

 
 
   
13-Weeks Ended
 
   
June 25,
   
June 26,
 
   
2011
   
2010
 
             
Balance - beginning of the period
  $ 44,030     $ 58,814  
Accrual for products sold during the period
    13,530       15,705  
Expenditures
    (15,869 )     (12,074 )
Change in accrual for products sold in prior periods
    -       (21,000 )
Balance - end of the period
  $ 41,691     $ 41,445  
                 
   
26-Weeks Ended
 
   
June 25,
   
June 26,
 
    2011     2010  
                 
Balance - beginning of the period
  $ 49,885     $ 87,424  
Accrual for products sold during the period
    24,333       30,618  
Expenditures
    (32,527 )     (33,821 )
Change in accrual for products sold in prior periods
    -       (42,776 )
Balance - end of the period
  $ 41,691     $ 41,445  

The 13-weeks and 26-weeks ended June 26, 2010 include the effect of a refinement in the estimated warranty reserve which decreased the accrual for the periods by $21,000 and $42,776, respectively.

8.
Commitments

We are a party to certain commitments, which includes raw materials, advertising and other indirect purchases in connection with conducting our business.  Pursuant to these agreements, the Company is contractually committed to make purchases of approximately $14,697 over the next 5 years.

9.     Income Taxes

Our earnings before taxes decreased from $164,409 in the second quarter of 2010 to $127,072 in the second quarter of 2011, while our income tax expense decreased by $11,998, to $17,595 for the 13-week period ended June 25, 2011, from $29,593 for the 13-week period ended June 26, 2010.  The effective tax rate was 13.8% in the second quarter of 2011 and 18.0% in the second quarter of 2010.  The effective tax rate was 8.5% in the first half of 2011 and 18.0% in the first half of 2010.  The change in the effective tax rate was primarily due to the first quarter release of reserves related to the expiration of certain statutes for Garmin Europe and lower reserves provided in 2011 following favorable audits in both 2010 and 2011.

10.   Fair Value Measurements
 
The Accounting Standards Codification (ASC) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).  The ASC classifies the inputs used to measure fair value into the following hierarchy:
 
Level 1
Unadjusted quoted prices in active markets for identical assets or liability
 
 
11

 
 
Level 2
Unadjusted quoted prices in active markets for similar assets or liabilities
 
Level 3
Unobservable inputs for the asset or liability
 
The Company endeavors to utilize the best available information in measuring fair value.  Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
 
For fair value measurements using significant unobservable inputs, an independent third party provided the valuation.  The collateral composition was used to estimate weighted average life based on historical and projected payment information.  Cash flows were projected for the issuing trusts, taking into account underlying loan principal, bonds outstanding, and payout formulas.  Taking this information into account, assumptions were made as to the yields likely to be required, based upon then current market conditions for comparable or similar term asset based securities as well as other fixed income securities.
 
Assets and liabilities measured at estimated fair value on a recurring basis are summarized below:
 
   
Fair Value Measurements as of June 25, 2011
 
Description
 
Total
   
Level 1
   
Level 2
   
Level 3
 
Available for-sale securities
  $ 1,072,339     $ 1,072,339     $ -     $ -  
Failed Auction rate securities
    7,156       -       -       7,156  
Total
  $ 1,079,495     $ 1,072,339     $ -     $ 7,156  
                                 
   
Fair Value Measurements as of December 25, 2010
 
Description
 
Total
   
Level 1
   
Level 2
   
Level 3
 
Available for-sale securities
  $ 781,257     $ 781,257     $ -     $ -  
Failed Auction rate securities
    20,562       -       -       20,562  
Total
  $ 801,819     $ 781,257     $ -     $ 20,562  
 
All Level 3 investments have been in a continuous unrealized loss position for 12 months or longer.  However, it is the Company’s intent to hold these securities until they recover their value.  For assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the period, the ASC requires a reconciliation of the beginning and ending balances, separately for each major category of assets.  The reconciliation is as follows:
 
   
Fair Value Measurements Using
 
   
Significant Unobservable Inputs (Level 3)
 
   
13-Weeks Ended
   
26-Weeks Ended
 
   
June 25, 2011
   
June 25, 2011
 
             
Beginning balance of auction rate securities
  $ 20,552     $ 20,562  
Total unrealized appreciation included in other
               
comprehensive income
    2,254       2,494  
Sales out of Level 3
    (15,650 )     (15,900 )
Transfers in and/or out of Level 3
    -       -  
Ending balance of auction rate securities
  $ 7,156     $ 7,156  
 
The following is a summary of the company’s marketable securities classified as available-for-sale securities at June 25, 2011:
 
 
12

 
 
   
Amortized Cost
   
Gross Unrealized
Gains
   
Gross
Unrealized
Losses
   
Other Than
Temporary 
Impairment
   
Estimated Fair 
Value (Net 
Carrying Amount)
 
Mortgage-backed securities
  $ 566,021     $ 15,194     $ -     $ -     $ 581,215  
Auction Rate Securities
    9,877       -       (2,721 )     -       7,156  
Obligations of states and political subdivisions
    340,841       1,954       (432 )     -       342,363  
U.S. corporate bonds
    104,104       1,976       (143 )     (1,274 )     104,663  
Other
    45,054       1,264       (2,220 )     -       44,098  
Total
  $ 1,065,897     $ 20,388     $ (5,516 )   $ (1,274 )   $ 1,079,495  
 
The following is a summary of the company’s marketable securities classified as available-for-sale securities at December 25, 2010:
 
   
Amortized Cost
   
Gross Unrealized
Gains
   
Gross
Unrealized
Losses
   
Other Than
Temporary
Impairment
   
Estimated Fair 
Value (Net 
Carrying
Amount)
 
Mortgage-backed securities
  $ 527,249     $ 1,913     $ (1,520 )   $ -     $ 527,642  
Auction Rate Securities
    25,599       -       (5,037 )     -       20,562  
Obligations of states and political subdivisions
    160,618       347       (3,340 )     -       157,625  
U.S. corporate bonds
    54,348       637       (185 )     (1,274 )     53,526  
Other
    39,838       2,626       -       -       42,464  
Total
  $ 807,652     $ 5,523     $ (10,082 )   $ (1,274 )   $ 801,819  
 
The cost of securities sold is based on the specific identification method.
 
The amortized cost and estimated fair value of marketable securities at June 25, 2011, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
 
         
Estimated
 
   
Cost
   
Fair Value
 
             
Due in one year or less
  $ 61,748     $ 62,625  
Due after one year through five years
    375,372       377,881  
Due after five years through ten years
    220,398       222,288  
Due after ten years
    371,350       378,818  
Other (No contractual maturity dates)
    37,029       37,883  
    $ 1,065,897     $ 1,079,495  

11. Subsequent Events

On July 26, 2011, a subsidiary of Garmin Ltd. acquired Navigon AG, a privately-held navigation provider based in Hamburg, Germany.

On June 30, 2011, a subsidiary of Garmin Ltd. acquired Tri-Tronics Inc., the leading designer and manufacturer of electronic dog training equipment.

In aggregate, these acquisitions are not material.

 
13

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The discussion set forth below, as well as other portions of this Quarterly Report, contains statements concerning potential future events.  Such forward-looking statements are based upon assumptions by our management, as of the date of this Quarterly Report, including assumptions about risks and uncertainties faced by the Company.  Readers can identify these forward-looking statements by their use of such verbs as expects, anticipates, believes or similar verbs or conjugations of such verbs.  If any of our assumptions prove incorrect or should unanticipated circumstances arise, our actual results could materially differ from those anticipated by such forward-looking statements.  The differences could be caused by a number of factors or combination of factors including, but not limited to, those factors identified in the Company’s Annual Report on Form 10-K for the year ended December 25, 2010.  This report has been filed with the Securities and Exchange Commission (the "SEC" or the "Commission") in Washington, D.C. and can be obtained by contacting the SEC's public reference operations or obtaining it through the SEC's web site on the World Wide Web at http://www.sec.gov.  Readers are strongly encouraged to consider those factors when evaluating any forward-looking statement concerning the Company.  The Company will not update any forward-looking statements in this Quarterly Report to reflect future events or developments.

The information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto included in this Form 10-Q and the audited financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 25, 2010.

The Company is a leading worldwide provider of navigation, communications and information devices, most of which are enabled by Global Positioning System, or GPS, technology.  We operate in five business segments, the outdoor, fitness, marine, automotive/mobile and aviation markets.  Our segments offer products through our network of independent dealers and distributors.  However, the nature of products and types of customers for the five segments may vary significantly.  As such, the segments are managed separately.

 
14

 
 
Results of Operations

The following table sets forth our results of operations as a percentage of net sales during the periods shown:
 
   
13-Weeks Ended
 
   
June 25, 2011
   
June 26, 2010
 
             
Net sales
    100 %     100 %
Cost of goods sold
    52 %     46 %
Gross profit
    48 %     54 %
Advertising
    5 %     6 %
Selling, general and administrative
    13 %     10 %
Research and development
    10 %     10 %
Total operating expenses
    28 %     26 %
Operating income
    20 %     28 %
Other income (expense), net
    -1 %     -5 %
Income before income taxes
    19 %     23 %
Provision for income taxes
    3 %     4 %
Net income
    16 %     19 %
                 
   
26-Weeks Ended
 
   
June 25, 2011
   
June 26, 2010
 
                 
Net sales
    100 %     100 %
Cost of goods sold
    53 %     46 %
Gross profit
    47 %     54 %
Advertising
    5 %     5 %
Selling, general and administrative
    13 %     12 %
Research and development
    12 %     12 %
Total operating expenses
    30 %     29 %
Operating income
    17 %     25 %
Other income (expense), net
    2 %     -7 %
Income before income taxes
    19 %     18 %
Provision for income taxes
    2 %     3 %
Net income
    17 %     15 %

The Company manages its operations in five segments: outdoor, fitness, marine, automotive/mobile, and aviation, and each of its segments employs the same accounting policies. Allocation of certain research and development expenses, and selling, general, and administrative expenses are made to each segment on a percent of revenue basis.   The following table sets forth our results of operations (in thousands) including revenue (net sales), operating income, and income before taxes for each of our five segments during the periods shown.  For each line item in the table, the total of the outdoor, fitness, marine, automotive/mobile, and aviation segments' amounts equals the amount in the condensed consolidated statements of income included in Item 1.

 
15

 
 
   
Reportable Segments
 
                     
Auto/
             
   
Outdoor
   
Fitness
   
Marine
   
Mobile
   
Aviation
   
Total
 
13-Weeks Ended June 25, 2011
                                   
                                     
Net sales
  $ 81,007     $ 78,014     $ 79,117     $ 362,706     $ 73,255     $ 674,099  
Operating income
  $ 35,667     $ 25,384     $ 23,357     $ 25,277     $ 21,906     $ 131,591  
Income before taxes
  $ 34,921     $ 24,568     $ 22,094     $ 23,228     $ 22,261     $ 127,072  
                                                 
13-Weeks Ended June 26, 2010
                                               
                                                 
Net sales
  $ 79,847     $ 62,469     $ 74,310     $ 447,225     $ 64,914     $ 728,765  
Operating income
  $ 38,035     $ 24,724     $ 32,146     $ 88,548     $ 18,590     $ 202,043  
Income before taxes
  $ 34,138     $ 21,512     $ 28,616     $ 62,419     $ 17,724     $ 164,409  
                                                 
                                                 
26-Weeks Ended June 25, 2011
                                               
                                                 
Net sales
  $ 147,458     $ 134,382     $ 130,425     $ 627,255     $ 142,413     $ 1,181,933  
Operating income
  $ 60,474     $ 40,841     $ 38,490     $ 26,872     $ 39,667     $ 206,344  
Income before taxes
  $ 63,109     $ 43,066     $ 40,523     $ 34,884     $ 42,416     $ 223,998  
                                                 
26-Weeks Ended June 26, 2010
                                               
                                                 
Net sales
  $ 139,233     $ 105,819     $ 115,625     $ 668,149     $ 131,007     $ 1,159,833  
Operating income
  $ 62,404     $ 38,923     $ 41,075     $ 105,530     $ 37,459     $ 285,391  
Income before taxes
  $ 54,244     $ 32,571     $ 35,244     $ 52,163     $ 35,710     $ 209,932  

 
16

 

Comparison of 13-Weeks Ended June 25, 2011 and June 26, 2010
(Amounts included in the following discussion are stated in thousands unless otherwise indicated)

Net Sales

   
13-weeks ended June 25, 2011
   
13-weeks ended June 26, 2010
   
Quarter over Quarter
 
   
Net Sales
   
% of Revenues
   
Net Sales
   
% of Revenues
   
$ Change
   
% Change
 
Outdoor
  $ 81,007       12 %   $ 79,847       11 %   $ 1,160       1 %
Fitness
    78,014       11 %     62,469       9 %     15,545       25 %
Marine
    79,117       12 %     74,310       10 %     4,807       6 %
Automotive/Mobile
    362,706       54 %     447,225       61 %     (84,519 )     -19 %
Aviation
    73,255       11 %     64,914       9 %     8,341       13 %
Total
  $ 674,099       100 %   $ 728,765       100 %   $ (54,666 )     -8 %

Net sales decreased 8% for the 13-week period ended June 25, 2011 when compared to the year-ago quarter.  The decrease occurred in the automotive/mobile segment with partially offsetting growth in all other segments.  Automotive/mobile revenue remains the largest portion of our revenue mix at 54% in the second quarter of 2011 compared to 61% in the second quarter of 2010.

Total unit sales decreased 6% to 3,756 in the second quarter of 2011 from 4,004 in the same period of 2010.   The decrease in unit sales volume in the second quarter of fiscal 2011 was primarily attributable to declining volumes in the automotive/mobile segment.  The fitness and marine segments posted 28% and 23% volume increases, respectively.

Automotive/mobile segment revenue decreased 19% from the year-ago quarter, as volumes decreased 11% and the average selling price (ASP) decreased 9%.  Volumes declined in the North American market as competitive technologies reduced the portable navigation device (PND) market.  ASP declines resulted from product mix shifting toward products bundled with lifetime maps requiring the net deferral of $62 million of revenue and the impact of $27 million of revenue from mobile handsets in the year ago quarter, which had considerably higher ASPs than other automotive/mobile products.  Revenues in our fitness segment increased 25% from the year-ago quarter on the strength of recent product introductions that expand the addressable market and ongoing global penetration in the segment.  Aviation revenues increased 13% from the year-ago quarter as the Company began to ship updated panel mount avionics products.

Cost of Goods Sold

   
13-weeks ended June 25, 2011
   
13-weeks ended June 26, 2010
   
Quarter over Quarter
 
   
COGS
   
% of Revenues
   
COGS
   
% of Revenues
   
$ Change
   
% Change
 
Outdoor
  $ 28,059       35 %   $ 26,590       33 %   $ 1,469       6 %
Fitness
    32,512       42 %     23,963       38 %     8,549       36 %
Marine
    34,909       44 %     25,202       34 %     9,707       39 %
Automotive/Mobile
    233,918       64 %     241,889       54 %     (7,971 )     -3 %
Aviation
    22,601       31 %     19,469       30 %     3,132       16 %
Total
  $ 351,999       52 %   $ 337,113       46 %   $ 14,886       4 %

Cost of goods sold increased 4% for the 13-week period ended June 25, 2011 when compared to the year ago quarter.  In the second quarter of 2010, cost of goods sold was positively impacted by 290 basis points as a percentage of revenues due to a $21.0 million warranty adjustment related to a change in estimate in warranty reserves.  Cost per unit, excluding the warranty adjustment, increased by 5% year-over-year due to product mix offset by the approximately 6% decline in unit sales mentioned above.

 
17

 

Gross Profit

   
13-weeks ended June 25, 2011
   
13-weeks ended June 26, 2010
   
Quarter over Quarter
 
   
Gross Profit
   
% of Revenues
   
Gross Profit
   
% of Revenues
   
$ Change
   
% Change
 
Outdoor
  $ 52,948       65 %   $ 53,257       67 %   $ (309 )     -1 %
Fitness
    45,502       58 %     38,506       62 %     6,996       18 %
Marine
    44,208       56 %     49,108       66 %     (4,900 )     -10 %
Automotive/Mobile
    128,788       36 %     205,336       46 %     (76,548 )     -37 %
Aviation
    50,654       69 %     45,445       70 %     5,209       11 %
Total
  $ 322,100       48 %   $ 391,652       54 %   $ (69,552 )     -18 %

Gross profit dollars in the second quarter of 2011 decreased 18% while gross profit margin decreased 600 basis points compared to the second quarter of 2010 driven primarily by the automotive/mobile segment.  Gross profit dollars in all segments excluding automotive/mobile represented 60% of gross profit in second quarter 2011 compared to 48% of gross profit in second quarter 2010.

The automotive/mobile segment gross profit margin percentage decreased 1040 basis points driven primarily by the 2010 warranty benefit discussed above and of the effect of ASP declines and cost per unit increases mentioned above.  The shift in product mix toward products bundled with lifetime maps required us to defer revenue and related costs, thereby lowering gross profit by $51 million during the current quarter compared to $19 million in the year ago quarter.  Outdoor and fitness gross profit margin percentage decreased 130 basis points and 330 basis points, respectively, from the year-ago quarter driven primarily by the 2010 warranty benefit.  Marine gross profit margin percentage decreased 1020 basis points driven by warranty and product mix shift toward lower margin fishfinders.

Advertising Expense

   
13-weeks ended June 25, 2011
   
13-weeks ended June 26, 2010
   
Quarter over Quarter
 
   
Advertising
   
% of Revenues
   
Advertising
   
% of Revenues
   
$ Change
   
% Change
 
Outdoor
  $ 4,301       5 %   $ 4,290       5 %   $ 11       0 %
Fitness
    4,763       6 %     3,193       5 %     1,570       49 %
Marine
    3,789       5 %     3,349       5 %     440       13 %
Automotive/Mobile
    19,987       6 %     30,658       7 %     (10,671 )     -35 %
Aviation
    1,258       2 %     950       1 %     308       32 %
Total
  $ 34,098       5 %   $ 42,440       6 %   $ (8,342 )     -20 %
 
Advertising expense decreased 20% in absolute dollars and decreased as a percentage of revenues when compared with the year-ago period.  The decrease in absolute dollars was driven by cooperative advertising, which decreased with volume declines, and reduced media advertising in automotive/mobile.  As a percentage of revenues, advertising expenses declined 80 basis points in the second quarter of 2011 compared to 2010.
 
 
18

 

Selling, General and Administrative Expense

   
13-weeks ended June 25, 2011
   
13-weeks ended June 26, 2010
       
   
Selling, General &
         
Selling, General &
         
Quarter over Quarter
 
   
Admin. Expenses
   
% of Revenues
   
Admin. Expenses
   
% of Revenues
   
$ Change
   
% Change
 
Outdoor
  $ 9,175       11 %   $ 7,837       10 %   $ 1,338       17 %
Fitness
    9,850       13 %     6,353       10 %     3,497       55 %
Marine
    9,822       12 %     7,674       10 %     2,148       28 %
Automotive/Mobile
    53,715       15 %     48,429       11 %     5,286       11 %
Aviation
    3,334       5 %     3,539       5 %     (205 )     -6 %
Total
  $ 85,896       13 %   $ 73,832       10 %   $ 12,064       16 %

Selling, general and administrative expense increased 16% in absolute dollars while increasing 260 basis points as a percentage of revenues compared to the year-ago quarter.  Selling, general and administrative expenses increased from 10% of revenues in the second quarter of 2010 to 13% of revenues in the second quarter of 2011.  The absolute dollar increase is primarily related to bad debt expense, legal costs and product support costs.  Percentage change for the fitness and marine segments is driven largely by the allocation of costs based on revenues.

Research and Development Expense

   
13-weeks ended June 25, 2011
   
13-weeks ended June 26, 2010
       
   
Research &
         
Research &
         
Quarter over Quarter
 
   
Development
   
% of Revenues
   
Development
   
% of Revenues
   
$ Change
   
% Change
 
Outdoor
  $ 3,805       5 %   $ 3,095       4 %   $ 710       23 %
Fitness
    5,505       7 %     4,236       7 %     1,269       30 %
Marine
    7,240       9 %     5,939       8 %     1,301       22 %
Automotive/Mobile
    29,809       8 %     37,701       8 %     (7,892 )     -21 %
Aviation
    24,156       33 %     22,366       34 %     1,790       8 %
Total
  $ 70,515       10 %   $ 73,337       10 %   $ (2,822 )     -4 %

Research and development expense decreased 4% due to the discontinuation of costs associated with the mobile handset initiative, as well as a slight decline in engineering headcount.   Research and development costs decreased $2.8 million when compared with the year-ago quarter representing a 40 basis point increase as a percent of revenue due to revenue declines outpacing research and development declines.
 
Operating Income

   
13-weeks ended June 25, 2011
   
13-weeks ended June 26, 2010
   
Quarter over Quarter
 
   
Operating Income
   
% of Revenues
   
Operating Income
   
% of Revenues
   
$ Change
   
% Change
 
Outdoor
  $ 35,667       44 %   $ 38,035       48 %   $ (2,368 )     -6 %
Fitness
    25,384       33 %     24,724       40 %     660       3 %
Marine
    23,357       30 %     32,146       43 %     (8,789 )     -27 %
Automotive/Mobile
    25,277       7 %     88,548       20 %     (63,271 )     -71 %
Aviation
    21,906       30 %     18,590       29 %     3,316       18 %
Total
  $ 131,591       20 %   $ 202,043       28 %   $ (70,452 )     -35 %

Operating income decreased 35% in absolute dollars and declined 820 basis points as a percent of revenue when compared to the second quarter of 2010.  Declining gross margin percentage, as discussed above, and increased selling, general and administrative expense as a percent of revenues were the primary contributing factors.

Other Income (Expense)

   
13-weeks ended
   
13-weeks ended
 
   
June 25, 2011
   
June 26, 2010
 
Interest Income
  $ 7,639     $ 5,791  
Foreign Currency Exchange
    (14,611 )     (43,605 )
Other
    2,453       180  
Total
  $ (4,519 )   $ (37,634 )

 
19

 

The average interest rate return on cash and investments during the second quarter of 2011 was 1.3% compared to 1.2% during the same quarter of 2010.  The increase in interest income is attributable to increasing cash balances and slightly increasing interest rates.

Foreign currency gains and losses for the Company are primarily tied to movements by the Taiwan Dollar, the Euro, and the British Pound Sterling.   The Taiwan Dollar is the functional currency of Garmin Corporation.  The U.S. Dollar remains the functional currency of Garmin (Europe) Ltd.  The Euro is the functional currency of all other European subsidiaries excluding Garmin Danmark, Garmin Sweden, Garmin Polska and Garmin Norge.  As these entities have grown, Euro currency moves generate material gains and losses.   Additionally, Euro-based inter-company transactions in Garmin Ltd. can also generate currency gains and losses.  The Canadian Dollar, Danish Krone, Swedish Krona, Australian Dollar, Polish Zloty and Norwegian Kroner are the functional currency of Dynastream Innovations, Inc., Garmin Danmark, Garmin Sweden, Garmin Australasia, Garmin Polska and Garmin Norge respectively; due to these entities’ relative size, currency moves are not expected to have a material impact on the Company’s financial statements.

The majority of the $14.6 million currency loss in the second quarter of 2011 was due to the weakening of the U.S. Dollar compared to the Taiwan Dollar.  The U.S. Dollar weakened against the Euro and strengthened against the British Pound Sterling creating an immaterial impact.  The currency movement of the Euro and Taiwan Dollar generate gains and losses due to the revaluation of Euro denominated assets (cash and receivables) in Garmin Ltd. and Garmin Europe, and also the revaluation of the U.S. Dollar denominated assets/liabilities (cash, receivables and payables) in Garmin Corp. (Taiwan).  During the second quarter of 2011, the U.S. Dollar weakened 2.2% compared to the Taiwan Dollar resulting in a loss of $14.6 million.  The remaining currency gains and losses related to other currencies and timing of transactions were immaterial.

The majority of the $43.6 million currency loss in the second quarter of 2010 was due to the strengthening of the U.S. Dollar compared to the Euro.  The strengthening of the U.S. Dollar compared to the Taiwan Dollar contributed a slight gain.  During the second quarter of 2010, the U.S. Dollar strengthened 7.9% and weakened 0.6%, respectively, compared to the Euro and the British Pound Sterling, resulting in a loss of $46.6 million.  In addition, the U.S. Dollar strengthened 0.5% against the Taiwan Dollar, resulting in a $3.4 million gain.  The remaining net currency loss of $0.4 million related to other currencies and timing of transactions.

Income Tax Provision
 
Our earnings before taxes decreased 23% when compared to the same quarter in 2010, and our income tax expense decreased by $12.0 million, to $17.6 million for the 13-week period ended June 25, 2011, from $29.6 million for the 13-week period ended June 26, 2010.  The effective tax rate was 13.8% in the second quarter of 2011 and 18.0% in the second quarter of 2010.  The change in the effective tax rate and decrease in income tax expense were primarily driven by lower reserves provided in 2011 related to uncertain tax positions following favorable audits in both 2010 and 2011.

Net Income

As a result of the above, net income decreased 19% for the 13-week period ended June 25, 2011 to $109.5 million compared to $134.8 million for the 13-week period ended June 26, 2010.

 
20

 

Comparison of 26-Weeks Ended June 25, 2011 and June 26, 2010
(Amounts included in the following discussion are stated in thousands unless otherwise indicated)

Net Sales

   
26-weeks ended June 25, 2011
   
26-weeks ended June 26, 2010
   
Year over Year
 
   
Net Sales
   
% of Revenues
   
Net Sales
   
% of Revenues
   
$ Change
   
% Change
 
Outdoor
  $ 147,458       13 %   $ 139,233       12 %   $ 8,225       6 %
Fitness
    134,382       11 %     105,819       9 %     28,563       27 %
Marine
    130,425       11 %     115,625       10 %     14,800       13 %
Automotive/Mobile
    627,255       53 %     668,149       58 %     (40,894 )     -6 %
Aviation
    142,413       12 %     131,007       11 %     11,406       9 %
Total
  $ 1,181,933       101 %   $ 1,159,833       100 %   $ 22,100       2 %

Net sales increased 2% for the 26-week period ended June 25, 2011 when compared to the year-ago period.  The increase occurred across all segments excluding automotive/mobile with the greatest increase in the fitness and marine segments.  Automotive/mobile revenue remains the largest portion of our revenue mix, but declined from 58% in the first half of 2010 to 53% in the first half of 2011.

Total unit sales increased 2% to 6,281 in the first half of 2011 compared to 6,138 in the same period of 2010.   The unit sales volume increase in the first half of fiscal 2011 was attributable to increasing volumes in the fitness and marine segments offset by a first half decline in automotive/mobile units as the North American PND market slowed due to penetration rates and competing technologies.

Automotive/mobile segment revenue decreased 6% from the year-ago period, as volumes decreased 1% and the average selling price (ASP) decreased 5%.  Volumes declined in the North American market as competitive technologies reduced the portable navigation device (PND) market.  ASP declines resulted from product mix shifting toward products bundled with lifetime maps requiring the net deferral of $84 million of revenue.  Fitness segment revenue increased 27% on the strength of recent product introductions and ongoing global penetration.  Marine revenues increased 13% due to shipments to new OEM partners.  Aviation revenues increased 9% from the year-ago period as the Company began to ship updated panel mount avionics products.

Cost of Goods Sold

   
26-weeks ended June 25, 2011
   
26-weeks ended June 26, 2010
   
Year over Year
 
   
Cost of Goods
   
% of Revenues
   
Cost of Goods
   
% of Revenues
   
$ Change
   
% Change
 
Outdoor
  $ 53,157       36 %   $ 47,465       34 %   $ 5,692       12 %
Fitness
    55,089       41 %     40,262       38 %     14,827       37 %
Marine
    53,019       41 %     42,287       37 %     10,732       25 %
Automotive/Mobile
    415,915       66 %     368,039       55 %     47,876       13 %
Aviation
    44,279       31 %     39,219       30 %     5,060       13 %
Total
  $ 621,459       53 %   $ 537,272       46 %   $ 84,187       16 %

Cost of goods sold increased 16% for the 26-week period ended June 25, 2011 when compared to the year ago period.  The increase was driven primarily by increased unit volumes of 2% and a non-recurring warranty benefit that contributed to reduced costs in 2010.  In the first half of 2010, cost of goods sold as a percentage of revenues was positively impacted by 370 basis points due to a $42.8 million warranty adjustment related to a change in estimate in warranty reserves.  In addition, cost per unit, excluding the warranty adjustment, increased by 5% year-over-year due to product mix.

 
21

 

Gross Profit

   
26-weeks ended June 25, 2011
   
26-weeks ended June 26, 2010
   
Year over Year
 
   
Gross Profit
   
% of Revenues
   
Gross Profit
   
% of Revenues
   
$ Change
   
% Change
 
Outdoor
  $ 94,301       64 %   $ 91,768       66 %   $ 2,533       3 %
Fitness
    79,293       59 %     65,557       62 %     13,736       21 %
Marine
    77,406       59 %     73,338       63 %     4,068       6 %
Automotive/Mobile
    211,340       34 %     300,110       45 %     (88,770 )     -30 %
Aviation
    98,134       69 %     91,788       70 %     6,346       7 %
Total
  $ 560,474       47 %   $ 622,561       54 %   $ (62,087 )     -10 %

Gross profit dollars in the first half of 2011 decreased 10% while gross profit margin percentage decreased 630 basis points over the same period of the previous year.  First half gross profit margins decreased in all segments when compared to the same period in 2010.  Gross margins in 2010 were positively impacted by 370 basis points due to a $42.8 million warranty adjustment related to refinement in the estimated warranty reserve.

The automotive/mobile segment gross profit margin percentage decreased 1120 basis points driven primarily by the 2010 warranty benefit, ASP declines and product cost increases discussed above. The shift in product mix toward products bundled with lifetime maps required us to defer revenue and related costs, thereby lowering gross profit by $69 million during the 26-weeks ended June 25, 2011 compared to $31 million for the 26-weeks ended June 26, 2010.  Outdoor and fitness gross profit margin percentage decreased 200 basis points and 290 basis points, respectively, from the year-ago quarter driven primarily by the 2010 warranty benefit.  Marine gross profit margin percentage decreased 410 basis points driven by warranty and product mix.

Advertising Expense

   
26-weeks ended June 25, 2011
   
26-weeks ended June 26, 2010
       
   
Advertising
         
Advertising
         
Year over Year
 
   
Expense
   
% of Revenues
   
Expense
   
% of Revenues
   
$ Change
   
% Change
 
Outdoor
  $ 7,202       5 %   $ 6,394       5 %   $ 808       13 %
Fitness
    8,243       6 %     4,896       5 %     3,347       68 %
Marine
    6,227       5 %     5,774       5 %     453       8 %
Automotive/Mobile
    30,135       5 %     40,570       6 %     (10,435 )     -26 %
Aviation
    2,247       2 %     2,207       2 %     40       2 %
Total
  $ 54,054       5 %   $ 59,841       5 %   $ (5,787 )     -10 %

Advertising expense decreased 10% in absolute dollars while holding flat at 5% of sales when compared with the year-ago period.  The decrease in advertising for the auto/mobile segment was driven by  reduced cooperative advertising paid to our retail partners and the elimination of mobile handset specific advertising, partially offset by  the increase in the fitness segment where we continue to invest for growth and are seeing strong increases in sales.
 
Selling, General and Administrative Expenses

 
 
26-weeks ended June 25, 2011
   
26-weeks ended June 26, 2010
        
   
Selling, General &
         
Selling, General &
         
Year over Year
 
   
Admin. Expenses
   
% of Revenues
   
Admin. Expenses
   
% of Revenues
   
$ Change
   
% Change
 
Outdoor
  $ 18,781       13 %   $ 16,903       12 %   $ 1,878       11 %
Fitness
    19,261       14 %     13,502       13 %     5,759       43 %
Marine
    18,171       14 %     14,662       13 %     3,509       24 %
Automotive/Mobile
    94,646       15 %     87,651       13 %     6,995       8 %
Aviation
    8,223       6 %     8,791       7 %     (568 )     -6 %
Total
  $ 159,082       13 %   $ 141,509       12 %   $ 17,573       12 %

Selling, general and administrative expense increased in both absolute dollars and as a percentage of sales compared to the year-ago period.  As a percent of sales, selling, general and administrative expenses increased from 12% of sales in the first half of 2010 to 13% of sales in the first half of 2011. The expense increase was primarily driven by bad debt expense, legal costs and product support costs.  Percentage change for the fitness and marine segments is driven largely by the allocation of costs based on revenues.

 
22

 

Research and Development Expense

   
26-weeks ended June 25, 2011
   
26-weeks ended June 26, 2010
       
   
Research &
         
Research &
         
Year over Year
 
   
Development
   
% of Revenues
   
Development
   
% of Revenues
   
$ Change
   
% Change
 
Outdoor
  $ 7,844       5 %   $ 6,067       4 %   $ 1,777       29 %
Fitness
    10,948       8 %     8,236       8 %     2,712       33 %
Marine
    14,518       11 %     11,827       10 %     2,691       23 %
Automotive/Mobile
    59,687       10 %     66,359       10 %     (6,672 )     -10 %
Aviation
    47,997       34 %     43,331       33 %     4,666       11 %
Total
  $ 140,994       12 %   $ 135,820       12 %   $ 5,174       4 %

Research and development expense increased 4% due to ongoing development activities for new products, and a year-over-year increase in headcount during the first quarter of 2011 offset by the discontinuation of costs associated with the mobile handset initiative.   Research and development costs increased $5.2 million when compared with the year-ago period and increased 20 basis points as a percent of revenue as research and development growth outpaced revenue growth.

Operating Income

   
26-weeks ended June 25, 2011
   
26-weeks ended June 26, 2010
   
Year over Year
 
   
Operating Income
   
% of Revenues
   
Operating Income
   
% of Revenues
   
$ Change
   
% Change
 
Outdoor
  $ 60,474       41 %   $ 62,404       45 %   $ (1,930 )     -3 %
Fitness
    40,841       30 %     38,923       37 %     1,918       5 %
Marine
    38,490       30 %     41,075       36 %     (2,585 )     -6 %
Automotive/Mobile
    26,872       4 %     105,530       16 %     (78,658 )     -75 %
Aviation
    39,667       28 %     37,459       29 %     2,208       6 %
Total
  $ 206,344       17 %   $ 285,391       25 %   $ (79,047 )     -28 %

Operating income decreased 710 basis points as a percent of revenue and 28% in absolute dollars when compared to the year-ago period as revenue growth was offset by declining gross margins and increased operating expenses as discussed above.

Other Income (Expense)

   
26-weeks ended
   
26-weeks ended
 
   
June 25, 2011
   
June 26, 2010
 
Interest Income
  $ 14,854     $ 12,669  
Foreign Currency Exchange
    (2,471 )     (90,141 )
Other
    5,271       2,013  
Total
  $ 17,654     $ (75,459 )

The average taxable equivalent interest rate return on invested cash during the first half of 2011 was 1.3% compared to 1.4% during the same period of 2010.  The increase in interest income is attributable to increasing cash balances offset by a slight decrease in interest rates.

The majority of the $2.5 million currency loss in the first half of 2011 was due to the weakening of the U.S. Dollar compared to the Euro, Taiwan Dollar and other global currencies.  The currency movement of the Euro and Taiwan Dollar generate gains and losses due to the revaluation of EUR denominated assets (cash and receivables) in Garmin Ltd. and Garmin Europe, and also the revaluation of the USD denominated assets/liabilities (cash, receivables and payables) in Garmin Corp. (Taiwan).  During the first half of 2011, the U.S. Dollar weakened 8.4% and 3.6%, respectively, compared to the Euro and the British Pound Sterling, resulting in a gain of $33.0 million.  In addition, the U.S. Dollar weakened 5.6% against the Taiwan Dollar, resulting in a $36.7 million loss.  The remaining net currency gain of $1.2 million related to other currencies and timing of transactions.

 
23

 

The majority of the $90.1 million currency loss in the first half of 2010 was due to the strengthening of the U.S. Dollar compared to the Euro.  The weakening of the U.S. Dollar compared to the Taiwan Dollar contributed a loss as well.  During the first half of 2010, the U.S. Dollar strengthened 14.3% and 6.3%, respectively, compared to the Euro and the British Pound Sterling, resulting in a loss of $85.7 million.  In addition, the U.S. Dollar weakened 0.7% against the Taiwan Dollar, resulting in a $5.7 million loss.  The remaining net currency gain of $1.3 million related to other currencies and timing of transactions.

Income Tax Provision
 
Our earnings before taxes increased 7% when compared to the same period in 2010, while our income tax expense decreased by $18.7 million or 50%, to $19.0 million, for the 26-week period ended June 25, 2011, from $37.8 million for the 26-week period ended June 26, 2010.  The effective tax rate was 8.5% in the first half of 2011 and 18.0% in the first half of 2010.    The decrease is primarily due to the first quarter release of reserves related to the expiration of certain statutes for Garmin Europe and lower reserves provided in 2011 related to uncertain tax positions following favorable audits in both 2010 and 2011.

Net Income

As a result of the above, net income increased 19% for the 26-week period ended June 25, 2011 to $205.0 million compared to $172.1 million for the 26-week period ended June 26, 2010.

Liquidity and Capital Resources

Net cash generated by operating activities was $411.0 million for the 26-week period ended June 25, 2011 compared to $381.9 million for the 26-week period ended June 26, 2010. Primary drivers of the cash generation included $205.0 million of net income with non-cash adjustments for depreciation/amortization of $38.2 million, and stock compensation expense of $17.3 million, $265.4 million related to accounts receivable collections as sales declined for the 13-weeks ended June 25, 2011 and $83.6 million of net deferred sales as required by our revenue recognition policies.  This cash generation was partially offset by uses of cash including a $142.9 million reduction in other current and noncurrent liabilities related primarily to the timing of royalty payments and sales program costs, a $30.0 million reduction in income taxes payable due to timing of payments and a $31.5 million increase in other current assets related to prepaid expenses.

Cash flow used in investing activities during the 26-week period ending June 25, 2011 was $274.3 million.  Cash flow used in investing activities principally related to the net purchase of $257.3 million of fixed income securities associated with the investment of our on-hand cash balances, $14.3 million in capital expenditures primarily related to business operation and maintenance activities, and the purchase of intangible assets for $2.6 million. It is management’s goal to invest the on-hand cash consistent with the Company’s investment policy, which has been approved by the Board of Directors. The investment policy’s primary purpose is to preserve capital, maintain an acceptable degree of liquidity, and maximize yield within the constraint of maximum safety. The average interest rate return on cash and investments during the 26-weeks ended June 25, 2011 was 1.3%.

Net cash provided by financing activities during the period was $5.2 million resulting from the issuance of common stock related to our Company stock option plan and stock based compensation tax benefits.

We believe that our existing cash balances and cash flow from operations will be sufficient to meet our projected capital expenditures, working capital, payment of dividends, and other cash requirements at least through the end of fiscal 2011.

 
24

 

Contractual Obligations and Commercial Commitments

We are a party to certain commitments, which includes raw materials, advertising and other indirect purchases in connection with conducting our business.  Pursuant to these agreements, the Company is contractually committed to make purchases of approximately $14.7 million over the next 5 years.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

 
25

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Market Sensitivity

We have market risk primarily in connection with the pricing of our products and services and the purchase of raw materials.  Product pricing and raw material costs are both significantly influenced by semiconductor market conditions.  Historically, during cyclical economic downturns, we have been able to offset pricing declines for our products through a combination of improved product mix and success in obtaining price reductions in raw material costs.

Inflation

We do not believe that inflation has had a material effect on our business, financial condition or results of operations.  If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases.  Our inability or failure to do so could adversely affect our business, financial condition and results of operations.

Foreign Currency Exchange Rate Risk

The operation of the Company’s subsidiaries in international markets results in exposure to movements in currency exchange rates. The potential of volatile foreign exchange rate fluctuations in the future could have a significant effect on our results of operations.    In accordance with the Accounting Standards Code, the financial statements of all Company entities with functional currencies that are not United States dollars (USD) are translated for consolidation purposes into USD, the reporting currency of Garmin Ltd.    Sales, costs, and expenses are translated at rates prevailing during the reporting periods and at end-of-period rates for all assets and liabilities.   The effect of this translation is recorded in a separate component of stockholders’ equity and has been included in accumulated other comprehensive income/(loss) in the accompanying condensed consolidated balance sheets.

Foreign currency gains and losses for the Company are primarily tied to movements by the Taiwan Dollar (TD), the Euro, and the British Pound Sterling.   The U.S. Dollar (USD) remains the functional currency of Garmin (Europe) Ltd.  The Euro is the functional currency of all European subsidiaries excluding Garmin Danmark, Garmin Sweden, Garmin Polska, and Garmin Norge.  As these entities have grown, Euro currency moves generated material gains and losses.   Additionally, Euro-based inter-company transactions in Garmin Ltd. can also generate currency gains and losses.  The Canadian Dollar, Danish Krone, Swedish Krona, Australian Dollar, Polish Zloty and Norwegian Kroner are the functional currency of Dynastream Innovations, Inc., Garmin Danmark, Garmin Sweden, Garmin Australasia, Garmin Polska, and Garmin Norge, respectively; due to these entities’ relative size, currency moves are not expected to have a material impact on the Company’s financial statements.

Interest  Rate Risk

As of June 25, 2011, we are exposed to interest rate risk in connection with our investments in marketable securities.   As interest rates change, the unrealized gains and losses associated with those securities will fluctuate accordingly.    As we have no outstanding long term debt, we have no meaningful debt-related interest rate risk.

 
26

 

Item 4.  Controls and Procedures

(a)  Evaluation of disclosure controls and procedures. The Company maintains a system of disclosure controls and procedures that are designed to provide reasonable assurance that information, which is required to be timely disclosed, is accumulated and communicated to management in a timely fashion.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. As of June 25, 2011, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded as of June 25, 2011 that our disclosure controls and procedures were effective such that the information relating to the Company, required to be disclosed in our Securities and Exchange Commission ("SEC") reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the Company's management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in internal control over financial reporting. There has been no change in the Company’s internal controls over financial reporting that occurred during the Company’s fiscal quarter ended June 25, 2011 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 
27

 

Part II - Other Information

Item 1.  Legal Proceedings

Ambato Media, LLC v. Clarion Co., Ltd., Clarion Corporation of America, Delphi Corporation, Fujitsu Limited, Fujitsu Ten Corporation of America, Garmin Ltd., Garmin International, Inc., Victor Company of Japan Ltd., JVC Americas Corporation, JVC Kenwood Holdings, Inc., J&K Car Electronics Corporation, LG Electronics, Inc., LG Electronics USA, Inc., MiTAC International Corporation, MiTAC Digital Corporation, Mio Technology USA Ltd., Navigon, Inc. Nextar Inc., Panasonic Corporation, Panasonic Corporation of North America, Pioneer Corporation, Pioneer Electronics (USA) Inc., Sanyo Electric Co., Ltd., Sanyo North America Corporation, Sanyo Electronic Device (U.S.A.) Corporation,
TomTom N.V., TomTom International B.V., and TomTom, Inc.

On August 14, 2009, Ambato Media, LLC filed suit in the United States District Court for the Eastern District of Texas against Garmin Ltd. and Garmin International, Inc. along with several codefendants alleging infringement of U.S. Patent No. 5,432,542 (“the ’542 patent”). On September 28, 2009, Garmin filed its answer and counterclaims asserting the ’542 patent is invalid and not infringed. On July 18, 2011, the court issued an order construing the claims of the ‘542 patent.  Although there can be no assurance that an unfavorable outcome of this litigation would not have a material adverse effect on our operating results, liquidity or financial position, Garmin believes that the claims are without merit and intends to vigorously defend this action.

Pioneer Corporation v. Garmin Deutschland GmbH, Garmin Ltd., Garmin International, Inc., Garmin (Europe Ltd. and Garmin Corporation

On October 9, 2009, Pioneer Corporation filed suit in the District Court in Düsseldorf, Germany against Garmin Deutschland GmbH, Garmin Ltd., Garmin International, Inc., Garmin Corporation and Garmin (Europe) Ltd. alleging infringement of European Patent No. 775 892 (“the ‘892 Patent”) and European Patent No. 508 681 (“the‘681 Patent”). Garmin has filed separate lawsuits in the German Federal Patent Court in Munich seeking declaratory judgments of invalidity of the ‘892 Patent and the ‘681 Patent. On January 11, 2011, the District Court in Düsseldorf issued decisions finding infringement of the ’892 and ’681 Patents.  On April 11, 2011, Garmin filed briefs with the appellate court appealing these decisions.  Although there can be no assurance that an unfavorable outcome of this litigation would not have a material adverse effect on our operating results, liquidity or financial position, Garmin believes that the claims are without merit and intends to vigorously defend this action.

In the Matter of Certain Multimedia Display and Navigation Devices and Systems, Components Thereof, and Products Containing the Same.

On November 13, 2009, Pioneer Corporation and Pioneer Electronics (USA) Inc. (collectively, “Pioneer”) filed a complaint with the United States International Trade Commission (the “Commission”) against Garmin International, Inc., Garmin Corporation, and Honeywell International Inc. alleging violation of Section 337 of the Tariff Act of 1930 and infringement of U.S. Patent No. 5,365,448 (“the ’448 patent”), U.S. Patent No. 6,122,592 (“the ’592 patent”), and U.S. Patent No. 5,424,951 (“the ’951 patent”). On July 1, 2011, the Commission issued a Final Decision concluding there is no violation of Section 337, finding the ‘592 patent is not infringed and invalid, and finding that Pioneer failed to establish a sufficient domestic industry to support the investigation.  Pioneer has 60 days from the issuance of the Final Decision to appeal.  Although there can be no assurance that an unfavorable outcome of this litigation would not have a material adverse effect on our operating results, liquidity or financial position, Garmin believes these claims are without merit and intends to vigorously defend any appeal in this action.

Vehicle IP, LLC v. AT&T Mobility LLC, Cellco Partnership, Garmin International, Inc., Garmin USA, Inc., Networks in Motion, Inc., Telecommunication Systems, Inc., Telenav Inc., United Parcel Service, Inc., and UPS Logistics Technologies, Inc.

On December 31, 2009, Vehicle IP, LLC filed suit in the United States District Court for the District of Delaware against Garmin International, Inc. and Garmin USA, Inc. along with several codefendants alleging infringement of U.S. Patent No. 5,987,377 (“the ’377 patent”). On March 11, 2010, Garmin filed its answer and counterclaims asserting the ’377 patent is invalid and not infringed. Although there can be no assurance that an unfavorable outcome of this litigation would not have a material adverse effect on our operating results, liquidity or financial position, Garmin believes these claims are without merit and intends to vigorously defend this action.

 
28

 

Nazomi Communications, Inc. v. Nokia Corporation, Nokia Inc., Microsoft Corporation, Amazon.com, Inc., Western Digital Corporation, Western Digital Technologies, Inc., Garmin Ltd., Garmin Corporation, Garmin International,  Inc., Garmin USA, Inc., Sling Media, Inc., VIZIO, Inc., and Iomega Corporation.

On February 8, 2010, Nazomi Communications, Inc. filed suit in the United States District Court for the Central District of California against Garmin Ltd., Garmin Corporation, Garmin International, Inc., and Garmin USA, Inc. along with several codefendants alleging infringement of U.S. Patent No. 7,080,362 (“the ’362 patent”) and U.S. Patent No. 7,225,436 (“the ’436 patent”). Garmin believes the ’362 patent and the ’436 patent are not infringed. On April 27, 2010, ARM Ltd., the designer of the accused hardware, filed a motion to intervene and a motion to transfer the case to the Northern District of California. On June 21, 2010, the court granted ARM Ltd.’s motion to intervene.  On October 14, 2010, the court granted ARM Ltd.’s renewed motion to transfer.  Although there can be no assurance that an unfavorable outcome of this litigation would not have a material adverse effect on our operating results, liquidity or financial position, Garmin believes these claims are without merit and intends to vigorously defend this action.

Visteon Global Technologies, Inc. and Visteon Technologies LLC v. Garmin International, Inc.

On February 10, 2010, Visteon Global Technologies, Inc. and Visteon Technologies LLC filed suit in the United States District Court for the Eastern District of Michigan, Southern Division, against Garmin International, Inc. alleging infringement of U.S. Patent No. 5,544,060 (“the ‘060 patent”), U.S. Patent No. 5,654,892 (“the ‘892 patent”), U.S. Patent No. 5,832, 408 (“the ‘408 patent”), U.S. Patent No 5,987,375 (“the ‘375 patent”) and U.S. Patent No 6,097,316 (“the ‘316 patent”). On May 17, 2010, Garmin filed its Answer asserting that each claim of the ‘060 patent, the ‘892 patent, the ‘408 patent and the ‘375 patent is not infringed and/or invalid. On April 12, 2011, the special master appointed by the court held a claim construction hearing.  On May 2, 2011, the special master issued his report construing the claims of the patents-in-suit.  On May 16, 2011, Garmin filed its objections with the court to the special master’s claim construction report.  The parties await the court’s resolution of claim construction.  Although there can be no assurance that an unfavorable outcome of this litigation would not have a material adverse effect on our operating results, liquidity or financial position, Garmin believes that the claims in this lawsuit are without merit and intends to vigorously defend this action.

Bandspeed, Inc. v. Acer, Inc., Acer American Corporation,  Belkin International, Inc., Belkin,Inc., Casio Computer Co., Ltd., Xasio Hitachi Mobile CommunicationsCo. Ltd., Xasio America, Inc., Dell Inc., Garmin International, Inc., Garmin USA, Inc., GN Netcom A/S, GN U.S. Inc. a/k/a GN Netcom Inc., Hewlett-Packard Company, Hewlett-Packard Development Company, L.P., HTC Corporation, HTC America, Inc., Huawei Technologies Co. Ltd., Kyocera Corporation, Kyocera International, Inc., Kyocera Communications, Inc., Kyocera Wireless Corporation, Lenovo (United States), Inc., LG Electronics, Inc., LG Electronics U.S.A. Inc., LG  Electronics Mobilecomm U.S.A. Inc., Motorola, Inc., Nokia Corporation, Nokia Inc., Pantech Wireless, Inc. Plantronics, inc., Research in Motion Ltd., Research in Motion Corporation, Samsung Telecommunications America, LLC, TomTom International B.V., TomTom, Inc., Toshiba Corporation, Toshiba America information Systems, Inc., and Toshiba America, Inc.

On June 30, 2010, Bandspeed, Inc. filed suit in the United States District Court for the Eastern District of Texas against 38 companies, including Garmin International, Inc. and Garmin USA, Inc. alleging infringement of U.S. Patent No 7,027,418 (“the ‘418 patent”) and U.S. Patent No 7,670,614 (“the ‘614 patent”). On October 6, 2010, the defendants filed a motion to transfer Venue to the Western District of Texas and the parties await the court’s ruling on this motion.  On January 21, 2011, Bandspeed, Inc. filed an amended complaint adding additional claims against several of the codefendants, but not against Garmin.  On February 22, 2011, Garmin filed its answer to the amended complaint with counterclaims asserting that the asserted claims of the ’418 and ’614 patents are invalid and not infringed.  Although there can be no assurance that an unfavorable outcome of this litigation would not have a material adverse effect on our operating results, liquidity or financial position, Garmin believes the claims in this lawsuit are without merit and intends to vigorously defend this action.

 
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Taranis IP LLC v. Garmin International, Inc., Universal Avionics Systems Corporation, Johnson Outdoors Marine Electronics, Inc., Johnson Outdoors Inc., Raymarine Inc., Raymarine UK Ltd., Navico, Inc., and Navico Holdings A.S.

On November 22, 2010, Taranis IP LLC filed suit in the United States District Court for the Northern District of Illinois against eight companies, including Garmin International, Inc., alleging infringement of U.S. Patent No. 5,995,903 (“the ’903 patent”).  On February 1, 2011, Garmin filed its answer and counterclaims asserting  that each claim of the ’903 patent is not infringed and/or invalid.  Although there can be no assurance that an unfavorable outcome of this litigation would not have a material adverse effect on our operating results, liquidity, or financial position, Garmin believes the claims in this lawsuit are without merit and intends to vigorously defend this action.

Triangle Software, LLC v. Garmin International, Inc., TomTom Inc., Volkswagen Group of America, Inc. and Westwood One, Inc.

On December 28, 2010, Triangle Software, LLC filed suit in the United States District Court for the Eastern District of Virginia against four companies, including Garmin International, Inc., alleging infringement of U.S. Patent No. 7,557,730 (“the ’730 patent”), U.S. Patent No. 7,221,287 (“the ’287 patent”), U.S. Patent No. 7,375,649 (“the ’649 patent”), U.S. Patent No. 7,508,321 (“the ’321 patent”), and U.S. Patent No. 7,702,452 (“the ’452 patent”).  On March 16, 2011, Garmin filed its amended answer asserting that the patents-in-suit are unenforceable because of the inequitable conduct committed by the inventors before the Patent Office and filed counterclaims asserting that each asserted claim of the ’730, ’287, ’649, ’321, and ’452 patents is not infringed and/or invalid.  On July 15, 2011, the court held a claim construction hearing and the parties await the court’s claim construction order.  Although there can be no assurance that an unfavorable outcome of this litigation would not have a material adverse effect on our operating results, liquidity, or financial position, Garmin believes the claims in this lawsuit are without merit and intends to vigorously defend this action.

In the Matter of Certain Semiconductor Chips and Products Containing Same

On December 1, 2010, Rambus Inc. filed a complaint with the United States International Trade Commission against 33 companies, including Garmin International, Inc., alleging infringement of U.S. Patent No. 6,470,405 (“the ’405 patent”), U.S. Patent No. 6,591,353 (“the ’353 patent”), U.S. Patent No. 7,287,109 (“the ’109 patent”), U.S. Patent No. 7,602,857 (“the ’857 patent”), U.S. Patent No. 7,602,858 (“the ’858 patent”), and U.S. Patent No. 7,715,494 (“the ’494 patent”).  Garmin’s semiconductor chip suppliers are also named in the complaint and Garmin believes these suppliers have indemnification obligations to defend Garmin in this matter.  On February 1, 2011, Garmin filed its answer asserting that the asserted claims of the ’405, ’353, ’109, ’857, ’858, and the ’494 patents are invalid and/or not infringed.  Although there can be no assurance that an unfavorable outcome of this litigation would not have a material adverse effect on our operating results, liquidity or financial position, Garmin believes these claims are without merit and intends to vigorously defend this action.

GPS Industries LLC v. Bushnell Corporation, Callaway Golf Company, Expresso Satellite Navigation, Inc., Garmin International, Inc., Goplanet Corporation, Savant GPS LLC, and Skyshot USA Inc.

On May 10, 2011, GPS Industries LLC filed  suit in the United States District Court for the Western District of Texas against seven companies, including Garmin International, Inc., alleging infringement of U.S. Patent No. 5,438,518 (“the ’518 patent”). This lawsuit has not yet been served on Garmin.  Although there can be no assurance that an unfavorable outcome of this litigation would not have a material adverse effect on our operating results, liquidity, or financial position, Garmin believes the claims in this lawsuit are without merit and intends to vigorously defend this action.

Qaxaz LLC v. Alpine Electronics of America, Inc., Best Buy Purchasing, LLC, Clarion Corporation of America, Garmin International, Inc. Insignia Products, MiTAC USA Inc., Motorola Mobility, Inc., Pioneer Electronics (USA) Inc., Telenav, Inc., and TomTom Inc.

On June 2, 2011, Qaxaz LLC filed  suit in the United States District Court for the District of Delaware against ten companies, including Garmin International, Inc., alleging infringement of U.S. Patent No. 7,917,285 (“the ’285 patent”).  On June 28, 2011, Garmin filed its answer and counterclaims asserting that the asserted claims of the ‘285 patent are invalid and/or not infringed.  Although there can be no assurance that an unfavorable outcome of this litigation would not have a material adverse effect on our operating results, liquidity, or financial position, Garmin believes the claims in this lawsuit are without merit and intends to vigorously defend this action.

 
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From time to time Garmin is involved in other legal actions arising in the ordinary course of our business. We believe that the ultimate outcome of these actions will not have a material adverse effect on our business, financial condition and results of operations.

Item 1A.   Risk Factors

There are many risks and uncertainties that can affect our future business, financial performance or share price.  In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 25, 2010.  There have been no material changes during the 13-week period ended June 25, 2011 in the risks described in our Annual Report on Form 10-K.  These risks, however, are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds

Items (a) and (b) are not applicable.

(c) Issuer Purchases of Equity Securities

The Board of Directors approved a share repurchase program on February 12, 2010, authorizing the Company to purchase up to $300,000 of its common shares as market and business conditions warrant.   The share repurchase authorization expires on December 31, 2011.    The Company did not purchase any shares under this authorization in the second quarter of fiscal 2011.

Item 3.
Defaults Upon Senior Securities

None

Item 5.
Other Information

Not applicable

 
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Item 6.   Exhibits

Exhibit 31.1              Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a).

Exhibit 31.2              Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a).

Exhibit 32.1              Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.2              Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
GARMIN LTD.
       
 
By 
 
/s/ Kevin Rauckman
     
Kevin Rauckman
     
Chief Financial Officer
     
(Principal Financial Officer and
     
Principal Accounting Officer)

Dated:   August 3, 2011

 
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INDEX TO EXHIBITS

Exhibit No.
 
Description
     
Exhibit 31.1
 
Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a).
     
Exhibit 31.2
 
Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a).
     
Exhibit 32.1
 
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
Exhibit 32.2
 
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 
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